Apollo, Max Healthcare, Yatharth, other hospital stocks rise up to 4% on Monday; Here's why

India's first major revamp of Central Government Health Services Scheme (CGHS) since 2014, has put the spotlight on the country's hospital stocks, Apollo Hospitals Ltd., Max Healthcare Ltd., Global Health Ltd., Narayana Health Ltd., Yatharth Hospitals, Fortis Healthcare Ltd. among others.

All of these stocks gained up to 4% on Monday, October 6, after the government revised rates for nearly 2,000 medical procedures under the CGHS. The new rates will come into effect on October 13.

Shares of Apollo Hospitals are trading with gains of over 2%, while those of Max Healthcare, the newest entrant to the Nifty 50 index, are up nearly 3%. Shares of Yatharth Hospitals and Healthcare Global are also trading with gains between 2.5% and 3.5%.

Issue At Hand

Earlier, many hospitals that had exposure to the CGHS, had often refused to provide cashless treatment, forcing patients to pay from their own pocket, and later, wait for months to get a reimbursement.

According to the hospitals, these CGHS packages that were in place, were outdated, and did not account for medical inflation since 2014.

The New Structure

The revamp, a first since 2014, will now create a multi-dimensional rate structure, based on four different parameters.

Rationalisation has been done based on accreditation, hospital type, city classification, ward entitlement (a decrease of 5% on General Ward).

Hospitals that have been accredited under the National Accreditation Board for Hospitals & Healthcare Providers (NABH), will be treated as the standard base rate, while the rates in non-accredited healthcare organisations is 15% less than that of accredited ones.

Rates will differ for tier-1, tier-2 and tier-3 cities, with the latter two costing 10% to 20% lower.

Impact

According to hospitals, the move will have a positive impact and that receivables are in a better state compared to earlier.

According to a note from DAM Capital, a preliminary review suggests an average hike between 25% to 30% across key procedures.

"Among listed players, Fortis, Max, Narayana Health, and Yatharth are expected to benefit the most due to higher government scheme exposure, with Yatharth accounting for nearly 35%," the note said.

Other players like Apollo Hospitals (9% exposure), Max Healthcare (21.8%), Global Health (18%), and Narayana Health (18%), are also likely to see a reaction.

Shares of Apollo Hospitals and Max Healthcare have declined between 4% and 7% respectively in the last one month, while those of Narayana Health are down 2%.